EIGHTH AMENDMENT TO
REVOLVING CREDIT AND
SECURITY AGREEMENT  






        THIS
EIGHTH AMENDMENT TO REVOLVING CREDIT AND SECURITY AGREEMENT (“Amendment”),
dated as of August 12, 2004, is by and between BADGER PAPER MILLS, INC., a corporation
organized under the laws of the State of Wisconsin (“Borrower”) and PNC
BANK, NATIONAL ASSOCIATION (“PNC”) as sole Lender and as Agent under the
Credit Agreement referred to below.  






W I T N E S S E T H : 



        WHEREAS,
PNC and Borrower entered into a certain Revolving Credit and Security Agreement, dated as
of November 30, 2001, as amended by a First Amendment to Revolving Credit and
Security Agreement, dated as of April 30, 2002, as further amended by a Second
Amendment to Revolving Credit and Security Agreement, dated as of September, 2002, as
further amended by a Third Amendment to Revolving Credit and Security Agreement, dated as
of August 13, 2003, as further amended by a Fourth Amendment to Revolving Credit and
Security Agreement, dated as of November 14, 2003, as further amended by a Fifth
Amendment to Revolving Credit and Security Agreement, dated as of March 23, 2004, as
further amended by a Sixth Amendment to Revolving Credit and Security Agreement dated as
of April 30, 2004 and as further amended by a Seventh Amendment to Revolving Credit
and Security Agreement dated as of May 14, 2004 (the “Credit Agreement”);  





        WHEREAS,
Borrower has requested that the Credit Agreement be amended as set forth herein;  





        NOW,
THEREFORE, in consideration of the terms and conditions contained herein, the parties
hereto agree as follows:  





        1.    DEFINITIONS.
All capitalized terms used herein and not           otherwise defined shall have the
meanings provided for in the Credit Agreement.  





        2.    AMENDMENT.
Subject to the satisfaction of the conditions           precedent set forth in Section 4
below, the Credit Agreement is hereby           amended as follows:  





	 	       2.1    The
definition of “Applicable Margin” set forth in Section 1.2 of the
Credit Agreement is hereby restated in its entirety to read as follows:  







	 	       “Applicable
Margin” shall mean the Applicable Margin per annum specified in the chart below
for a particular level and Fixed Charge Coverage ratio and a particular type of Loan for
the period set forth below, as the case may be.  
	 




















	   Level 
	Fixed Charge Coverage ("FCC") 
		Revolving Advances 

			Domestic 
Rate Loans 
	Eurodollar 
Rate Loans 

	Level 1	 	 	FCC<1.0 (year to date)	 	 	 	1.0	%	 	3.50	%
	Level 2	 	 	FCC<1.0 (trailing 12 months)	 	 	 	.50	%	 	3.00	%
	Level 3	 	 	FCC>1.00 (trailing 12 months) 	 	 	 	0	%	 	2.50	%







	 	
The
Applicable Margin shall at all times be that set forth for Level 1 above unless Borrower
achieves a Fixed Charge Coverage Ratio equal to or greater than 1.0 to 1.0 as of the end
of any calendar quarter for the year to date portion of the calendar year then ended, in
which case the Applicable Margin shall be adjusted to Level 2 for the next succeeding
calendar quarter. If Borrower achieves a Fixed Charge Coverage Ratio equal to or greater
than 1.0 to 1.0 as of the end of any calendar quarter measured on a trailing 12-month
basis, the Applicable Margin shall be adjusted to Level 3 for the next succeeding
calendar quarter. Any adjustment to the Applicable Margin shall be effective commencing
on the tenth (10th) Business Day after the delivery of the quarterly financial
statements delivered in accordance with Section 9.8 and the related compliance
certificate of Borrower; provided, however, that in the event that Borrower shall fail at
any time to furnish to Agent the quarterly financial statements and compliance
certificate required to be delivered pursuant to Section 9.8, the Applicable Margin
set forth in Level 1 above shall apply until the tenth (10th) Business Day
after the date that the quarterly financial statements and such compliance certificate
are so delivered to the Agent, to the extent any adjustment is required.” 	 






	 	       2.2    
     Section 6.5 of the Credit Agreement is hereby restated in its entirety to read as
follows:  









	 	       “6.5    
Fixed Charge Coverage Ratio; Undrawn Availability. Cause to be
maintained (i) at the end of each calendar quarter commencing with the calendar
quarter ending March 31, 2002 (but excluding the calendar quarters ending September 30,
2003, December 31, 2003, March 31, 2004, June 30, 2004, September 30, 2004, December
31, 2004, March 31, 2005, June 30, 2005 and September 30, 2005), a Fixed Charge Coverage
Ratio of not less than 1.0 to 1.0, calculated for the twelve immediately preceding months
ending as of the date of determination, (ii) at the end of the one-month period
ending June 30, 2004 a Fixed Charge Coverage Ratio of not less than 1.0 to 1.0, (iii) a
Fixed Charge Coverage Ratio of not less than 1.0 to 1.0 at the end of the calendar
quarter ending March 31, 2005 calculated for the three immediately preceding months, at
the end of the calendar quarter ending June 30, 2005 calculated for the six immediately
preceding months, and at the end of the calendar quarter ending September 30, 2005
calculated for the nine immediately preceding months, and (iv) Undrawn Availability
of not less than $2,000,000 as of the close of business on at least three Business Days
during each calendar week for the period commencing on August 16, 2004 through and
including March 31, 2005.” 
	 










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	 	       2.3    
     Section 6.6 of the Credit Agreement is hereby restated in its entirety to read as
follows:  









	 	       “6.6    
Net Loss. Cause to be maintained a net loss not in excess of (i) $675,000
for the calendar quarter ending September 30, 2004, and (ii) $450,000 for the
calendar quarter ending
December 31, 2004.” 
	 







	 	       2.4    Retention
of Consultant. To retain a management consultant acceptable to Agent, upon
terms and conditions acceptable to Agent, on or before September 30, 2004.  







        3.    
WAIVER.  





	 	       3.1    PNC,
as Agent and sole Lender, hereby waives Borrower’s compliance with the Fixed Charge
Coverage Ratio covenant, as set forth in Section 6.5 of the Credit Agreement, for
the calendar month ending June 30, 2004.  







	 	       3.2    PNC,
as Agent and Lender, hereby waives Borrower’s compliance with the Tangible Net Worth
Covenant contained in Section 6.6 of the Credit Agreement for the calendar month
ending June 30, 2004.  







        4.    
CONDITIONS PRECEDENT. This Amendment shall become effective
                    upon the delivery to Agent of executed counterparts of this Amendment
and the                     following additional items:  





	 	       a.    
                    Payment to Agent in immediately available funds of an amendment and
waiver fee                     in the amount of $25,000; and  







	 	       b.    
                    Such other items as Agent may reasonably request.  







        5.    
EXPENSES. Borrower shall pay, upon demand, all reasonable
                    attorneys’ fees and out-of-pocket costs of Agent and Lender in
connection                     with this Amendment and the agreements, documents and
other items contemplated                     hereunder.  





        6.    
REAFFIRMATION OF GRANT OF SECURITY INTEREST. Borrower
                    expressly acknowledges and agrees that all collateral, security
interests,                     liens, pledges and mortgages heretofore, under this
Amendment or hereafter                     granted to Agent including, without
limitation, such collateral, security                     interests, liens, pledges and
mortgages granted under the Credit Agreement and                     the Other Documents
and all supplements thereto, extend to and secure all of the
                    obligations of Borrower to Agent and Lenders, now existing or
hereafter arising                     including, without limitation, those arising in
connection with the Credit                     Agreement, as amended by this Amendment,
upon the terms set forth in such                     agreements, all of which security
interests, liens, pledges and mortgages are                     hereby ratified,
reaffirmed, confirmed and approved.  









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        7.    
MISCELLANEOUS.  





	 	       7.1    Limited
Nature of Amendment. The parties hereto acknowledge and agree that the
terms and provisions of this Amendment amend, add to and constitute a part of the Credit
Agreement. Except as expressly waived or modified and amended by the terms of this
Amendment, all of the other terms and conditions of the Credit Agreement and all
documents executed in connection therewith or referred to or incorporated therein remain
in full force and effect and are hereby ratified, reaffirmed, confirmed and approved.  







	 	       7.2    Conflict.
If there is an express conflict between the terms of this Amendment and the terms of the
Credit Agreement, or any of the other agreements or documents executed in connection
therewith or referred to or incorporated therein, the terms of this Amendment shall
govern and control.  







	 	       7.3    
Counterparts. This Amendment may be executed in one or more counterparts, each of
which shall be deemed to be an original. 







	 	       7.4    Representations
and Warranties. Borrower represents and warrants to Agent and Lenders as
follows: (A) Borrower has all necessary corporate power and authority to execute and
deliver this Amendment and perform its obligations hereunder; (B) this Amendment and
the Credit Agreement, as amended hereby, constitute the legal, valid and binding
obligations of Borrower and are enforceable against Borrower in accordance with their
terms; and (C) all representations and warranties of Borrower contained in the
Credit Agreement and all other agreements, instruments and other writings relating
thereto are true and complete as of the date hereof.  







	 	       7.5    Governing
Law. This Amendment was executed and delivered in Chicago, Illinois and
shall be governed by and construed in accordance with the internal laws (as opposed to
conflicts of law provisions) of the State of Illinois.  








[SIGNATURE PAGE
FOLLOWS] 
























        IN
WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year
first above written.  









		BADGER PAPER MILLS, INC.



		By:   	/s/ William H. Peters 

		Name:   	William H. Peters

		Title:   	Vice President








		PNC BANK, NATIONAL ASSOCIATION, as Agent and Lender



		By:   	/s/ S. B. Winick 

		Name:   	Sherry B. Winick

		Title:   	Vice President





















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